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Analysts at Stifel have downgraded Vertex Energy (NASDAQ:VTNR) to "Hold" from an investment rating of "Buy," citing deteriorating fundamentals for refining.
Stifel also trimmed its price target on VTNR to $4 from $6.
In its investment thesis, Stifel wrote that over the last 18 months, VTNR has seen significant volatility in conventional refining profits, with current spreads suggesting flat to negative EBITDA in 4Q23 and FY24 from the conventional refining business.
"The bottom has fallen out of the conventional refining selling prices and crack spread bring profitability down to breakeven to modest profit. There has been no recovery in D4 RIN and LCFS, which puts renewable diesel at a loss to breakeven. Conversion to lower cost feedstock is a possible long-term solution to poor subsidy values but that does not happen quickly. Unless US-EPA revisits its RVO approach to renewable diesel (and correspondingly the impact to D4 RIN) it is hard to see RD fundamentals improving soon," Stifel analysts write in a December 18 report.
They also added that depressed D4 RIN prices and elevated RD feedstock costs are likely to keep the RD business from generating positive EBITDA and FCF until FY25. Combined, the headwinds from weak spreads in conventional and RD businesses are expected to limit valuation upside over the next 12 months.
VTNR has fallen -41.7% so far this year; stock is currently down -5% at $3.47.
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